NFON AG

Earnings Release • Sep 20, 2018

THE NEW FREEDOM OF BUSINESS COMMUNICATION

Half-year Financial Report 2018 20 September 2018

We want to dominate the European Cloud telephony market by delivering freedom of business communication.

Introduction & Strategy

NFON – The only true Pan-European Cloud PBX company

Shift to cloud communication creates unique opportunity

Source: MZA (2017)

5

Coherent multi vector growth strategy

Business Highlights

NFON on schedule for growth

Customer development in existing markets

Leverage on proof of concept in Germany …

>25% German

market share

+1,100 Partners in Europe

Further success in Wholesale partner business

… for European rollout

13 European countries

287k+ Seats NFON Group

Continuous product development

Comments

• Easy-to-use
• Integrate services such as Softphone and Ncontrol
• First introduction of new client at CeBIT 2018 with high interest of partners and customers
• Launch second half 2018

• New Client base for further development of Premium solutions

• Neorecording: MiFID II-compliant voice recordings and storage

• Ncontactcenter adds a fully-fledged cloud contact center solution to the NFON Cloud Telephone (ACD, 2,500 parallel calls)

Disciplined M&A strategy to further accelerate growth

Capitalise on high market fragmentation

Potential tragets should be fully aligned to NFON's acquisition criteria

Compelling strategic rationale

Business Model & Financial Overview

3

NFON's top line mechanics are centred around recurring revenue

Share of recurring revenues at the top line of guidance

Development total recurring vs. non-recurring revenues

• Increase of total revenues by 21.7%
• − Driven by strong growth of recurring revenues to €16.5m (+28.6%)
• − Stable share of non-recurring revenue of €4.1m
• Based on the nature of NFON's business, revenue growth in the earlier quarters of the year tends to be lower than expected full year growth as a result of the cumulative effect of new seat wins
• Highly recurring revenues also driven by negative net churn rates and increasing y-o-y customer wins and number of seats

Sustainable recurring revenues based on continuous growth in total number of seats

• Increase of total number of seats by 30%
• Growth on revenues based on an increasing number of seats and largely stable ARPU levels
• ARPU levels are impacted by the increasing share of sales through wholesale partners selling their own airtime
• Additional premium solutions represent upside potential for ARPU development in the medium term
• Very low gross churn rate of <0.5% per month (by negative net churn rate) underlines quality of product and service guarantees continuous

Consistently increasing gross margin

Cost of materials and adj. gross margin development

• Cost of materials are largely variable in nature and mainly comprise of costs for hardware sold, costs for airtime sold and data centre housing costs
• Gross margin is positively influence by higher margin of recurring revenues
• Gross margins are additionally influenced by the share of revenue generated through wholesale partners having different price structures and offering airtime themselves

Growing work force in line with growth strategy

Development of personnel

of employees

Increase of adj. personnel expenses corresponds to growing work force

Adj. personnel expense development

• Historically, personnel expenses represent the single largest cost position. Personnel expenses as reported €13.1m
• One-off effect out of share-based payments of €3.7m established as a share appreciation right program
• Retention bonus (IPO) of €0.6m
• Exit bonus (IPO) of €0.7m²
• Increase of adj. personnel expenses by 21% is primarily impacted by growing work force, which is in line with our growth strategy

Marketing expenses will further increase by implementing growth strategy

€m, % of revenue

• Given strong conversion rates, marketing expenses are highly correlated with future revenue development
• Marketing activities aimed at increasing the penetration of existing customers and attracting new customers in the markets in which we are already present
• Marketing activities means
• − Lead generation and brand marketing as well as various other marketing measures
• − Further expansion of our channel partner network to expand our distribution reach

Consistent decrease of adj. other expenses as % of revenue demonstrates our high operating leverage

Adj. other expenses development (without marketing expenses)¹

€m, % of revenue

Comments

• Other expenses comprise of sales commissions, supporting cost, general administration expenses and consulting fees amongst others
• NFON adjusted other expenses by marketing cost, sales commissions and by one-off effects (e.g. IPO costs first half 2018 of €2.4m or related to tax and social securities €0.6m, full year 2017)

20

Adj. other expenses developed slower than revenue growth, emphasising the operating leverage of our business model

¹Other expenses defined as other operating expenses excl. marketing expenses and sales commissions; ²2017: Adjusted for expenses for the introduction of a transfer pricing model, additions to provisions related to potential value-added tax repayments, social security contributions and payroll taxes, as well as fees for professional advisors related to those topics in 2017 in total amounting to €0.8m; HY 2018: adjusted for IPO related one-off expenses €2.4m

Adj. EBITDA break even despite higher costs

Reconciliation from EBITDA to adjusted EBITDA	H1 2018	H1 2017
€m
EBITDA	-6.6 1	-0.7
payments1 Share-based	3.7	-0.1
Retention bonus	0.6	0
IPO costs	2.4	0
Total EBITDA adjustments	6.7	-0.1
Adjusted EBITDA	0.1 1	-0.8
Consolidated net loss	-7.0	-1.1
Adjusted consolidated net loss	-0.3	-1.2

• Enforcement of strategy implementation charges EBTIDA as planned
• EBITDA as reported amounts to €-6.6m
• − One-off effects in personnel expenses and other operating expenses
• − Total adjustments in EBTDA of €6.7m
• Successful first half year leads to break even in adj. EBITDA

Summarizing first half-year 2018 NFON AG is on track

€20.6m revenues with 80% recurring revenues

287,000+ seats

Largely stable ARPU <0.5% gross churn rate per month

Adj. EBITDA break even

Launch of new NFON-Client Expansion in other countries

NFON confirms guidance for 2018

Clear focus on implementation of growth strategy

Key Investment Highlights and Q&A

4

Key investment highlights

Huge addressable business communication market being disrupted by structural shift to Cloud PBX solutions 1

Only true Pan-European Cloud PBX company best positioned to become the dominant European player 2

Strong business model resulting in unique combination of massive growth and sustainable recurring revenue 3

State-of-the-art "German Engineering" Cloud PBX solution tailored to European customer needs 4

Outstanding track record of scalable growth underpinned by break-even profitability at Group level 5

6 Proven growth strategy leveraging multi dimensional layers of growth

Thanks @NFONcom #cloud #telephony #allip

Management Board of NFON AG

Hans Szymanski CEO/CFO

• 20 years of C-Level experience

• Previous experience includes
• − CEO/CFO Francotyp-Postalia
• − President Jenoptik LOS
• − Klöckner & Co

Jan-Peter Koopmann CTO

• 20 years of experience in the IT/Telco industry

• Previous experience includes
• − Founder Seceidos
• − Tiscali

• − Telenor Group

• 10 years of C-Level experience

• Previous experience includes
• − Aconex
• − Co-founder conject Group
• − Mercer Management Consulting

NFON share at a glance

Facts

ISIN	DE000A0N4N52
Segment	Prime Standard/ Telecommunication
Shares	13.8 million
Designated sponsor	Baader Bank ODDO Seydler
First day of trading	11 May 2018
Coverage	Berenberg Bank, Baader Bank, Oddo BHF

Shareholder structure¹

Financial calendar

Date	Event
20 Sep 2018	Interim Half-year Report 2018
Web- and Telephone Conference
22 Nov 2018	Interim Report 3rd Quarter 2018
Web- and Telephone Conference
27 Nov 2018	German Equity Forum Frankfurt
Analyst Presentation and 1-on-1

Contact

Sabina Prüser Head of Investor Relations

NFON AG

Machtlfinger Straße 7 81379 München

Telephone

Fon +49 (0) 89 453 00 134 Fax + 49 (0) 89 453 00 33 134 sabina.prueser@nfon.com

Blog https://www.nfon.com/blog/de/

Facebook https://facebook.com/NFONcom

Twitter https://twitter.com/NFONcom